Oil eases below $80, bull trend remains

Oil has surged over 7% so far this month, building on gains of almost 10% last month. WTI has rallied over 4% over the past 4 sessions hitting a 7 year high of 82.18 earlier this week. However, after 4 consecutive sessions of gains oil bulls are taking a breather and WTI has slipped below $80.

What factors are supporting oil prices?

Oil prices have been driving higher as demand outstrips supply. As economies reopen and economic activity picks up, oil demand has risen. Boosting demand further is the ongoing energy crisis.

Gas prices and coal prices continue to rise, trading at around all time highs. Oil looks comparatively cheap and is now an attractive alternative for fuel generation.

Meanwhile on the supply side, OPEC agreed to stick to the previous plan of raising output by 400k bpd rather than ramping up production further.

Why are oil prices easing today?

Concerns over global growth are taking the edge of the bullish oil trade today. Concerns are rising that oil demand growth will slow as economies suffer from elevated inflation and supply chain issues.

Yesterday the IMF trimmed its global growth forecast from 6% to 5.9% for this year, citing inflationary concerns and supply chain problems as holding back the economic recovery from the pandemic.

US CPI is due to be released shortly and is expected to print at 5.3% in September, unchanged from August, whilst core CPI is expected at 4% also unchanged. The FOMC minutes are expected to reflect the hawkish bias from the policy announcement itself.

Higher than forecast inflation could further fuel concerns over demand growth being hit. Meanwhile signs that the Fed are moving towards tightening monetary policy could also unnerve oil bulls, whilst pushing the US Dollar higher.

Looking ahead

In addition to the release of US CPI & the FOMC minutes, the latest API crude stockpile inventory figures are expected. Last week the data showed a surprise rise in inventories by 951,000 barrels. Expectations are for another build of 100,000 barrels which would mark the third straight weekly rise.

Where next for crude oil prices?

WTI  crude oil continues to trade in its ascending channel dating back to late August, hitting a 7 year high of $81.85 on Monday. The ascending channel still favours bullish traders meanwhile today’s move lower appears to lack strong follow through.

 The RSI tipped into overbought territory so there is also a good chance that today’s easing in the price is a technical move, bringing the RSI back below 70.

Should WTI take out yesterday’s low of $79.00 then a deeper selloff could be on the cards towards $78.20 October 4 high and $76.50 the September high.

On the flip side a move back above $80 could see the buyers look to target $81.85 once again.

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